Economic development in the European super-periphery: Evidence from the Western Balkans

Abstract

This paper argues that the conflicts that afflicted the Western Balkan region in the 1990s pushed the countries into the European 'super-periphery', characterized by deindustrialization and high unemployment, ethnic and regional fragmentation, political turmoil, and instability. Integration into international trade has been disrupted, leading to chronic balance of payments deficits. Low inflows of international capital, due to high country risk, have hindered technological catch-up and weakened international competitiveness. An unattractive environment for productive entrepreneurship has created barriers to the entry of SMEs, and at the same time large informal economies. Several countries have become labour-export economies, with significant outflows of skilled labour. Economic development follows a low-skill growth path. The current global economic crisis is having a further deleterious effect as export revenues, foreign direct investment, and labour remittances all diminish. Furthermore, as transition has proceeded, disparities between capital cities and rural areas have increased, while weak administrative capacities have hindered the implementation of effective local development policies to counteract these effects. Endogenous local development cannot provide an alternative to greater engagement with the global economy. The conclusion is that the countries of the region have been left out of the most beneficial elements of the globalisation process, while simultaneously suffering from its main defects. Without a faster process of accession to the EU, local disparities are likely to widen, and the region may remain within the European super-periphery for the foreseeable future.